The mining landscape (Part One)

At current production levels, coal reserves in Russia could help support its coal needs for around 443 years. Russia, with a share of 18.2%, is second only to the US (27.6%) in terms of global proven coal reserves at the end of 2012. Domestic coal reserves totalled 157 billion t, comprising sub-bituminous and lignite grade coal reserves of 107.9 billion t and anthracite and bituminous grade coal reserves of 49.1 billion t. However, the projected total domestic coal reserves are expected to be in the range of 4 ? 5 trillion t, chiefly spread across eastern Siberia (84%) and the far east of Russia (6%). The Kuzbass coalfield has the largest share of coal reserves (56%), along with the Kansko-Achinky coalfield (12%), Zabaikalsk area and Khakassia with 6% and 4%, respectively.

Coal mining in Russia is carried out in 129 pits and 86 mines spread across 16 coal basins in 25 regions in 85 Russian municipalities, with production capacity of 411.2 million tpa. While the Kuzbass is one of the largest coal mining regions in southwestern Siberia, eastern Siberia, the Republic of Tuva (Ulug – Khem Basin, including Elegestkoe, Mezhegeyskoe, Kaa-Khem and Chadanskoe, among other deposits), the Republic of Sakha (Yakutia, including Elgin, Chulmakanskoe and other deposits) and the Trans-Baikal Territory (Apsat), are also promising centres in terms of coal producing capacities.

Russian coal production was up by 5% from 2011, standing at 351.2 million t in 2012, making Russia the world’s sixth largest coal producer after China, the US, India, Australia and Indonesia. During Q1 2013, domestic output was down by 1.1% and coal supplies up by 1.2%, indicating sufficient stocks at the Russian warehouses to meet coal demand. However, the Ministry of Energy estimates domestic coal production and exports in 2013 will remain level in 2014. Meanwhile, the Russian Government approved a long-term programme for the development of the coal industry for the period up to 2030, framed by the Ministry of Energy in association with federal and regional authorities, and other and related organisations. The long-term plan expects domestic coal production to reach 355 million t in its first stage (to 2015), 380 million t in its second stage (to 2020) and 430 million t in the third stage (to 2030).

The plan also emphasises the development of new coal mining activity centres, including promising coal deposits in under developed regions, such as the Elga deposit in the South Yakutia Basin, the Mezhegeyskoe and Elegest field in the Republic of Sakha (Yakutia), the Ulughemskogo Basin (Tuva Republic), Apsat (Amur region) and the Mencherep deposit (Kemerovo region), among others. With the introduction of new production centres, the regional structure of Russian coal mining will shift towards the east. While western Siberia’s share of coal will decrease from 58% to 45%, eastern Siberia will increase its share from 26% to 32% and the far east region from 9.7% to 15.2%.

The restructuring of the Russian coal industry led to the privatisation of coal assets and all coal mining is now carried out by joint stock companies with private ownership. This has led to the emergence of a number of large enterprises, management companies and holding companies owning coal assets. OJSC Siberian Coal Energy (SUEK) alone represents over 30% of the country’s coal supplies and 25% of Russian thermal coal exports. OJSC Kuzbassrazrezugol, JSC HC “SDS-Coal”, En+ Group, EVRAZ plc, ??? Severstal, Ural Mining and Metallurgical Co., OOO Industrial Metallurgical Holding Management Co., and Mechel OAO are a few major companies sharing the Russian coal mining landscape.

Rising internal and external demand for coal

Coal plays an important role in Russia’s energy balance and is expected to increase its share in fuel consumption by thermal power plants from 26% to 34 – 36% during the implementation of the third phase of Russia’s energy strategy (ES) for the period up to 2030 (ES-2030). The drafted ES further indicates a reduction in the share of gas in fuel consumption by thermal power plants from 70% to 60 – 62% during the third phase of the strategy ending 20307. Russia’s coal consumption was up by 7.4% from 2011 to reach 250.1 million t in 2012. The domestic demand for coal is further expected to increase to reach 267.2 million t in 2015 and 280.7 million t in 2020.

The expected increase in domestic demand for coal is driven by the long-term programme for the development of the coal industry for the period up to 2030, which promotes the use of coal by introducing 26 GW of additional power plant capacity by 2030. Domestic dry cement plants are also expected to drive future coal demand. While demand for coal from thermal power plants is expected to increase from 105 million t in 2015 to 110 million t in 2020, 115 million t in 2025 and 120 million t in 2030, domestic steel-based coal demand will increase to 42 million t between 2015 and 2020 and will remain flat thereafter at 40 million t in 2025 and 2030. Demand from other sectors such as households and agricultural sectors, among others, will also increase from 40 million t in 2015 to 48 million t in 2020, 56 million t in 2025 and 59 million t in 2030.

Prospects for growth in Russian coal exports could be supported by a beneficial geographical location between European and Asian markets, while also being helped by a continued effort to improve development of coal facilities. With a view to expand its coal exports and mark its presence in the global coal trade, the government has planned to develop and modernise its ports, railways and related infrastructure facilities.

The construction of a coal terminal with a capacity of 20 million tpa.

Developing the east Nakhodka transport unit.

Constructing and reconstructing the infrastructure in the seaport of Busan.

Capacity additions of the railways connecting Kuzbass and Ural, and the ports of the Baltic, Barents, Sea of Japan and the Azov-Black Sea Basin.

The development the Baikal-Amur mainline.

The construction of a new Kuznetsov Tunnel and the building of rail transport in the Kuzbass.

Russian coal exports are expected to reach 134.5 million t in 2015. However, the Ministry of Energy estimates that total coal exports will reach 140 million t in 2015, including thermal coal exports of 115 million t and metallurgical coal of 25 million t. The growth in exports will further increase to reach 150 million t in 2020 (76.7% thermal coal; 23.3% metallurgical coal), 155 million t in 2025 (74.2% thermal coal; 25.8% metallurgical coal) and 170 million t in 2013 (73.5% thermal coal; 6.5% metallurgical coal).

Russia is the fifth largest coal producer in the world. The country faces stiff competition from Australia and Indonesia in the coal export segment. The country’s coal export opportunity is bottlenecked by its higher transportation cost, limited export handling capacities and supporting export infrastructure. While Russia eyes a major share of the growing demand for coal from the Asian markets of China, Japan, South Korea and Vietnam, it faces tough competition from the US and the European coal export markets. The shale gas boom displaces the use of coal in the US and improves the prospect of US coal supply to European markets. Furthermore, with the possibility of implementing a new quota system for coal exports by the Ukrainian Government, Russian metallurgical coal exporters could face difficult times.

This article first appeared in the September issue of World Coal. To read Part Two of the article, please click here.